Stonesoft Corporation Stock Exchange Release, 25 October 2007 9.15 AM
Stonesoft Corporation Interim Report January-September 2007
STRONG SEASONAL VARIATION: STONEGATE(TM) SALES REMAINED BELOW TARGET
DURING THE THIRD QUARTER - THE GROWTH IN JANUARY-SEPTEMBER WAS 17 %
The sales of Stonesoft's main product portfolio, the StoneGate(TM)
product line, decreased by 13% during the third quarter and the
overall group net sales decreased by 9%. The growth of StoneGate(TM)
products for the first three quarters was 17%. The company's net
sales in continuing operations for the entire year is expected to
grow compared to the previous year. The size of the growth will
depend on timing of certain larger projects.
July-September 2007 (later "reporting period", previous year's
comparable figures are in brackets and refer to the figures of
continuing operations).
- The net sales for the reporting period totalled EUR 4.0 million
(EUR 4.4 million), which shows a comparable decrease of 9% compared
to the previous year's corresponding period.
- Stonesoft's core business, the sales of the StoneGate(TM) product
family consisting of a Firewall, VPN, SSL VPN and IPS (intrusion
prevention and detection system) were EUR 2.0 million (EUR 2.3
million), a decrease of 13%.
- The operating result was EUR -1.6 million (EUR -1.3 million).
- Earnings per share were EUR -0.03 (EUR -0.02).
- Shareholder's equity per share was EUR 0.12 (EUR 0.21).
- Liquid assets at the end of the reporting period totalled EUR 9.1
million (EUR 12.3 million).
- The cash flow was EUR -1.8 million (EUR -2.5 million).
CEO Ilkka Hiidenheimo
The company's net sales decreased in the third quarter compared to
the last year while the annual overall net sales still showed
significant growth. Cash flow developed favourably compared to both
the previous year and to the previous quarter, though the development
was not as good as the company had estimated.
The company continued to implement the strategy and growth plan
established in 2006 decisively. In the third quarter, we managed to
gain significant growth in the emerging markets. However, in Europe
and in the United States we did not meet our sales targets, which was
due among others to the postponement of some individual deals and the
slow progress of the government budget negotiations in the United
States.
The SSL VPN products introduced in the spring of 2007 have been
received positively on the market. The StoneGate(TM) product offering
will be further extended by the affordable StoneGate FW-100
appliances, which provide the company the opportunity to win larger
projects in the retail industry, among others.
To further improve the profitability of the company we will continue
our strong investment in extending our product portfolio and in
improving our competitiveness. Increasing the efficiency of sales
management and localizing communications has resulted in strong
growth of our sales pipeline. Clarifying our position as a provider
of integrated network security and business continuity has
strengthened our position in the market and in our key customer
target groups. The company has been able to keep the costs at the
same level as in previous year despite of the increase of the sales.
January-September 2007
- Net sales for the reporting period totalled EUR 13.2 million (EUR
12.2 million), which shows a comparable increase of 9% compared to
the previous year's corresponding period.
- Stonesoft's core business, sales of the StoneGate(TM) product
family, was EUR 7.0 million (EUR 6.0 million), an increase of 17%.
- The operating result was EUR -5.3 million (EUR -4.7 million).
- Earnings per share were EUR -0.09 (EUR -0.08 million).
- The cash flow was EUR -5.2 million (EUR -5.8 million).
NET SALES AND PROFIT
July-September 2007
The group's net sales in the reporting period were EUR 4.0 million
(EUR 4.4 million). The decrease from the previous year's
corresponding period was EUR 0.4 million, or 9%. The operating result
was EUR -1.6 million (EUR -1.3 million) and the result after taxes
was EUR -1.8 million (EUR -1.2 million).
The sales of the main product portfolio StoneGate(TM) were EUR 2.0
million (EUR 2.3 million), a decrease of 13% compared to previous
year's corresponding quarter.
The estimation of the final selling price of Embe Systems Oy has not
changed during the reporting period.
January-September 2007
Stonesoft group's net sales in January-September were EUR 13.2
million (EUR 12.2 million). Compared with the previous year's
corresponding period, there was an increase of EUR 1.0 million, or
9%. The operating loss was EUR 5.3 million (EUR -4.7 million) and the
loss after taxes was EUR 3.0 million (-4.4 million).
The sales of the main product portfolio StoneGate(TM) were EUR 7.0
million (EUR 6.0 million), an increase of 17% compared to previous
year's corresponding quarter.
The geographical distribution of net sales was as follows: EMEA
(Europe, Middle East and Africa) 72% (69%), Americas (North and South
America) 22% (23%) and APAC (Asia-Pacific) 6% (8%).
Finance and investments
At the end of the reporting period, the group's total assets were EUR
16.5 million (EUR 20.7 million). The equity ratio was 62% (73%) and
gearing (the ratio of net debt to shareholder's equity) was -1.34
(-1.04). Consolidated liquid assets of the group at the end of the
reporting period totaled EUR 9.1 million (EUR 12.3 million).
Investments in tangible and intangible assets totaled EUR 0.3 million
(EUR 0.2 million).
DEVELOPMENT OF BUSINESS OPERATIONS
Main business events in the quarter
-Stonesoft announced two patents: "Method and device for handling
related connections in a firewall" and "An intrusion detection method
and system".
-Stonesoft launched new StoneGate Transparent Access Control (TAC)
module, which enables transparent segmentation and access control of
the network without the need to change the network configurations.
-Research company Gartner Inc. listed Stonesoft in their renowned
Magic Quadrant research report. The report analyzes the market
development of enterprise level firewalls and positions the leading
industry vendors by their ability to execute and the completeness of
the vision.
REVIEW OF MAJOR RESEARCH AND DEVELOPMENT ACTIVITIES
The group's R&D investments during the quarter totaled EUR 1.0
million (EUR 1.1 million).
R&D employed 62 (66) persons at the end of the quarter.
SHARE CAPITAL AND STOCK OPTION PROGRAMS
At the end of the reporting period, Stonesoft's share capital
recorded in the Trade Register totaled EUR 1.146.054,64. The number
of shares was 57.302.732. The share capital remained unchanged.
Stock option programs
During the reporting period no subscriptions were made on the basis
of the stock option programs for the key personnel of the company.
The company's valid stock option programs and their subscription
prices are as follows:
- Stock Option program 2004-2010, subscription price EUR 0.56
DEVELOPMENT OF SHARE PRICES AND TURNOVER
During the reporting period, the average price of Stonesoft's share
was EUR 0.49. The highest share price was EUR 0.56 and the lowest EUR
0.37. The official closing price was EUR 0.41. During the reporting
period, 12.7 million shares were traded, which is 22.2% of the total
number of shares.
Based on the share price on 30 September 2007, Stonesoft's market
capitalization was EUR 23.5 million.
CHANGES IN OWNERSHIP
During the reporting period, the Group received one notice of changes
in ownership.
PERSONNEL
At the end of the reporting period, Stonesoft's personnel totalled
183 (178 in continuing operations).
AUTHORIZATIONS TO THE BOARD OF DIRECTORS
Authorization to issue new shares and to grant option and other
special rights.
The Board of Directors is authorized to decide on one or more share
issues and to grant option and other special rights so that the total
number of shares or rights to the shares issued may be 11.450.000 at
the maximum.
The new shares to be issued in a new issue and/or the option or
special rights may be offered for subscription either according to
the shareholders' pre-emptive subscription rights or in deviation
from the shareholders' pre-emptive subscription right, in case the
deviation is justified by a weighty financial reason for the company,
such as financing of an acquisition, enabling of a joint venture
transaction, providing of additional financial alternatives, and/or
an arrangement for incentive program directed to the company's
personnel.
The Board of Directors is authorized to decide on other terms and
conditions related to the share issues and to the issuance of option
or other special rights. The authorization is in force until the end
of the 2009 AGM.
The Board of Directors is not authorized to purchase the company's
own shares. At the moment there are no shares in the company's
possession.
CORPORATE GOVERNANCE
Stonesoft complies since 2004 with the Corporate Governance
Recommendation for listed companies issued by the Helsinki Stock
Exchange. More information can be found from Stonesoft's web site:
http://www.stonesoft.com/en/investor_relations/corporate_governance.
RISKS AND BUSINESS UNCERTAINTIES
Risk management is organized to be part of the Stonesoft management
system. The Board of Directors approves the risk management policy
that includes risk management principles and processes. The CEO is
responsible for organizing risk management, and the CFO, as the
coordinator of risk management, develops risk management tools and
establishes global insurance policies. The directors of the business
units are responsible for identifying and managing risks in their
units. The target of risk management is to ensure conditions for
achieving the strategic targets and the business continuity.
In the near future, the risks and business uncertainties relate to
the realization timetable of the sales projects and possible
production disruption of our subcontractors and suppliers.
Operational risks
Stonesoft constantly develops its sales processes and related control
systems. Product sales and the sales of related services are made
mainly through a global channel. The sales are supported by the legal
department, which seeks to reduce the legal risks related to business
operations through continuously developing, managing and giving
guidance related to Stonesoft agreements, and by making legal risk
assessments for business plans before their implementation. The
company has worldwide insurances to cover operational risks.
Stonesoft manages and safeguards its critical business information by
stringent internal policies and processes. The company constantly
reviews and updates its network infrastructure and guarantees the
safety of its business-critical information. All critical components
are duplicated and, in addition, the company has a continuously
updated back up system placed in another physical location.
Financial risks
The most significant currency in addition to Euro is US dollar. The
company's costs occur mostly in Euros. The company operates actively
to minimize the exchange rate risks.
The main principles of the treasury policy of the company are; (i) to
ensure the short-term liquidity of the company, (ii) to guarantee
efficient circulation and short-term investments of the operational
cash flows and (iii) to follow prudent and transparent investment
policy for the cash reserves, aiming at guaranteeing competitive
return on the selected risk level. The company's reserves are all
invested in interest-bearing low-risk instruments.
The company's operations and related costs are continuously
controlled. The company does not have a separate internal audit
organization or a separate audit committee.
FUTURE OUTLOOK
According to the Research Institute Infonetics, the Firewall/VPN and
IPS Intrusion detection and prevention market will grow globally by
roughly 8% in 2007. The market will continue to be dynamic.
In our view, companies will continue to network with their partners
and subcontractors, and this development will create even higher
requirements for network security and availability. We believe that
combining security and high availability, which is the cornerstone of
StoneGate(TM) product design, will prove its strength even better in
this development.
The convergence of voice, video and data on IP-based networks will
create more demand for capacity and drive the adoption of 10 Gbps
networks. The growing demand for added bandwidth together with new
protocols in the IP networks is expected to increase the general
demand for better reporting, monitoring and analysis tools. This
development will support Stonesoft in achieving its year 2007 growth
plan, since these are the cornerstones in StoneGate(TM) Management
Center's functionality. Stonesoft will further strengthen its
competitiveness by introducing new products to complement its
StoneGate(TM) product line.
Stonesoft will continue its decisive and persistent efforts to
increase its net sales and to improve the profitability of the
company. The company's main target is to have a strong growth of net
sales generating also improved profitability. By extension of the
product portfolio and improved competitiveness, we aim to win more
deals of larger size.
Based on the extension of the product portfolio, intensification of
sales efforts and strong growth of the sales pipeline, the company
expects to have an annual overall net sales of roughly 19 million
euros (+/- 10%) while the comparable net sales figure during the
previous financial year was 16,5 million euros. The estimation is
based on the company's existing sales funnel. The annual costs are
expected to be 23 million euros (+/- 10 %). The comparable cost
during the previous financial year was 22,6 million euros. The
operating profit and the total result for the whole year are expected
to develop favourably.
With regard to the development of the turnover and the result, we
expect a significant variation between the quarters in comparison to
the corresponding quarter during the previous year as well as to the
previous quarter as a consequence of, among others, long sales
cycles, a relatively big impact of individual deals, and the
variation between the quarters in the previous year.
This interim report is prepared in accordance with IAS 34 standard.
Stonesoft Corporation has adhered to the same accounting principles
and reporting standards as in the Financial Statements for 2006.
The presented figures are unaudited.
Stonesoft Group
Income Statement 7-9/2007 7-9/2006 1-9/2007 1-9/2006 1-12/2006
(1000 Euro)
Continuing operations
Net sales 4 040 4 441 13 205 12 160 16 479
Other operating
income 374 185 738 581 766
Materials and
services -643 -532 -1 927 -1 419 -1 915
Personnel expenses -3 004 -3 185 -9 919 -9 622 -13 135
Depreciation -113 -124 -341 -392 -512
Other operating
expenses -2 295 -2 052 -7 029 -6 014 -8 292
Operating result -1 641 -1 268 -5 274 -4 706 -6 608
Financial income
and expenses -89 107 131 288 382
Result before taxes -1 730 -1 161 -5 143 -4 418 -6 226
Taxes -42 -55 -136 -159 -262
Result from
continuing operations -1 772 -1 217 -5 279 -4 577 -6 488
Result from
discontinued
operations 0 -25 2 217 150 40
Result for the
accounting period -1 772 -1 242 -3 062 -4 427 -6 448
Basic earnings per
share (EUR),
continuing operations -0,03 -0,02 -0,09 -0,08 -0,11
Diluted earnings per
share (EUR),
continuing operations -0,03 -0,02 -0,09 -0,08 -0,11
Basic earnings per
share (EUR),
discontinued
operations 0,00 0,00 0,04 0,00 0,00
Diluted earnings per
share (EUR),
discontinued
operations 0,00 0,00 0,04 0,00 0,00
Stonesoft Group
Balance Sheet (1000 Euro) 30.9.2007 30.9.2006 31.12.2006
ASSETS
Non-Current Assets
Tangible assets 651 612 608
Intangible assets 87 140 137
Deferred tax assets 2 2 2
Total 739 754 747
Current assets
Inventories 980 663 912
Trade and other receivables 5 437 3 884 5 522
Prepayments 179 149 98
Marketable securities 7 907 11 748 13 755
Cash and cash equivalents 1 237 564 616
Total 15 740 17 009 20 902
Asset held for sales 0 2 978 2 859
Total assets 16 479 20 741 24 507
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent company
Share capital 1 146 1 146 1 146
Share premium account 76 971 76 872 76 897
Conversion differences -903 -857 -867
Retained earnings -70 472 -65 388 -67 410
Total 6 742 11 774 9 767
Long-term liabilities
Provisions 164 120 112
Interest bearing liabilities 11 83 62
Other long-term liabilities 1 466 1 059 1 296
Total 1 641 1 263 1 470
Short-term liabilities
Trade and other payables 7 757 6 760 12 041
Tax liability 87 99 116
Provisions 166 44 84
Short-term interest bearing
liabilities 86 128 107
Total 8 096 7 031 12 348
Liabilities held for sales 0 674 922
Total liabilities 9 737 8 968 14 740
Total equity and liabilities 16 479 20 741 24 507
Stonesoft
Group
Statement of
changes in
equity
(1000 Euro)
Share Share Conversion Retained
capital premium differences earnings Total
Shareholders'
equity at 16
01.01.2006 1 146 76 845 -849 -60 961 181
Conversion
differences -8 -8
Result for -4
the period -4 427 427
Total recognized
income and expense -4
for the period -8 -4 427 435
Stock options
exercised 27 27
Shareholders'
equity at 11
30.9.2006 1 146 76 872 -857 -65 388 774
Share Share Conversion Retained
capital premium differences earnings Total
Shareholders'
equity at
01.01.2007 1 146 76 897 -867 -67 410 9 767
Conversion
differences -36 -36
Result for -3
the period -3 062 062
Total recognized
income and expense -3
for the period -36 -3 062 098
Stock options
exercised 73 73
Shareholders'
equity at
30.9.2007 1 146 76 971 -903 -70 472 6 742
Stonesoft Group
Cash flow statement (1000 Euro) 1.1.-30.9. 1.1.-30.9. 1.1.-31.12.
2007 2006 2006
Cash flow from operating activities
Operating Result -5 274 -4 706 -6 608
Adjustments 514 528 984
Change in net working capital 37 -1 340 -1 240
Taxes paid -136 -159 -261
Net cash flow from operating
activities continuing operations -4 859 -5 677 -7 125
Net cash flow from operating
activities discontinued
operations 0 -508 114
Total cash flow from operating
activities -4 859 -6 186 -7 011
Cash flow from investing activities
Investments in tangible assets -306 -129 -216
Investments in intangible
assets -28 -24 -50
Investments in affiliated
company 0 1 3 631
Net cash flow investing activities
continuing operations -334 -153 3 365
Net cash flow investing
activities discontinued
operations -448 -97 -131
Total cash flow investing
activities -782 -250 3 233
Cash flow from financing activities
Payments of financial leasing
liabilities -73 -124 -166
Total cash flow from financing
activities -73 -124 -166
Change in cash and cash equivalents
Cash and cash equivalents at
beginning of period 14 370 18 097 18 097
Conversion differences -36 -8 -18
Changes in the market value of
investments 32 178 -39
Discontinued operations 492 606 274
Total cash and cash equivalents at
end of period *) 9 144 12 312 14 370
*) Total cash and cash equivalents
at end of the period contains
pledged securities 290 3 3
Stonesoft Group
Geographical segments 1.1.-30.9.2007 1.1.-30.9.2006 1.1.-31.12.2006
(1000 Euro)
Net sales
EMEA 9 541 12 264 16 938
AMER 2 870 2 760 3 571
APAC 794 1 040 1 370
Total net sales 13 205 16 064 21 879
Operating profit
EMEA -3 573 -2 725 -4 131
AMER -1 570 -1 448 -2 040
APAC -131 -379 -366
Total operating profit -5 274 -4 552 -6 536
Stonesoft Group
Contingent liabilities 1.1.-30.9.2007 1.1.-30.9.2006 1.1.-31.12.2006
(1000 Euro)
Contingent off-balance
sheet
Non-cancelable other
leases 4 730 6 286 6 103
Contingent
liabilities for the
Company 20 320 323
Pledged shares 0 0 585
Contingent
liabilities for
inventories 240 0 0
Stonesoft Group
Related party
information 1.1.-30.9.2007 1.1.-30.9.2006 1.1.-31.12.2006
(1000 Euro)
Consultation fees paid
to the Board of
Directors 44 9 9
Stonesoft
Group
Quarterly
development Q3 / Q2 / Q1 / Q4 / Q3 / Q2 / Q1 /
(Euro
Millions) 2007 2007 2007 2006 2006 2006 2006 2006
Security
software and
appliances 2,011 2,705 2,319 2,315 2,338 1,722 2,121 8,496
Services 2,052 2,137 1,989 2,073 2,044 1,992 1,959 8,068
Other
products -0,023 0,003 0,012 -0,070 0,059 -0,047 -0,027 -0,085
Net sales
continuing
operations 4,040 4,845 4,320 4,319 4,441 3,666 4,053 16,479
Change-%
from previous
year -9 % 32 % 7 % -2 % 24 % -20 % 4 % 0 %
Net sales
discontinuing
operations 0 0 0 1,497 1,072 1,377 1,455 5,400
Change-%
from previous
year 4 % -3 % -13 % -12 % -7 %
Net sales
total 4,040 4,845 4,320 5,816 5,513 5,043 5,508 21,879
Change-%
from previous
year -27 % -4 % -22 % 1 % 17 % -18 % -1 % -2 %
Sales margin 3,396 4,108 3,773 5,320 4,980 4,645 5,020 19,965
Sales margin
% 84 % 85 % 87 % 91 % 90 % 92 % 91 % 91 %
Operative
expenses 5,398 5,823 6,024 7,469 6,436 6,788 6,472 27,164
Operating
profit
(EBITA) -1,641 -1,544 -2,089 -1,984 -1,293 -1,975 -1,284 -6,536
% of net
sales -41 % -32 % -48 % -34 % -23 % -39 % -23 % -30 %
Result before
taxes -1,730 -1,438 -1,975 -1,907 -1,185 -1,888 -1,189 -6,170
% of net
sales -43 % -30 % -46 % -33 % -22 % -37 % -22 % -28 %
Stonesoft Group
Key ratios 1.1.-30.9.2007 1.1.-30.9.2006 1.1.-31.12.2006
(1000 Euro)
Net sales total 13 205 16 064 21 879
Net sales
change-% -18 % -2 % -2 %
Net sales,
continuing
operations 13 205 12 160 16 479
Net sales
change-% 9 % 0 % 0 %
Net sales,
discontinued
operations 0 3 904 5 400
Net sales
change-% -10 % -7 %
Operating result
total -5 274 -4 552 -6 536
% of net
sales -40 % -28 % -30 %
Operating
result,
continuing
operations -5 274 -4 706 -6 608
% of net
sales -40 % -39 % -40 %
Operating
result,
discontinued
operations 0 154 72
% of net
sales 4 % 1 %
Operating result
before taxes -5 143 -4 262 -6 170
% of net
sales -39 % -27 % -28 %
ROE - %,
annualized,
continuing
operations -85 % -42 % -50 %
ROI - %,
annualized -78 % -39 % -46 %
Equity ratio-% 62 % 73 % 66 %
Net gearing -1,34 -1,04 -1,50
Total Assets 16 479 20 741 24 507
Capital
expenditure 341 270 416
Capital
disposals -7 -19 -165
R&D costs 3 656 3 514 4 804
% of net
sales 28 % 22 % 22 %
Number of
employees
(weighted
average) 181 250 251
Number of
employees (end
of the period) 183 251 254
Share Specific
Ratios
Earnings per
share,
continuing
operations -0,09 -0,08 -0,11
Earnings per
share,
discontinued
operations 0,04 0,00 0,00
Equity per share 0,12 0,21 0,17
Dividend 0,00 0,00 0,00
Dividend per
share (EUR) 0,00 0,00 0,00
Dividend /
Profit-% 0 % 0 % 0 %
Calculation of
indicators
Return on equity
(ROE) % = (Profit before taxes - income taxes) x 100/
Shareholders' equity + minority interest
(average)
Return on
invested capital (Profit before extraordinary items + interest and
(ROI) % = other financial expenses) x 100/
Balance sheet total - non-interest bearing debt
(average)
(Equity + minority interest) x
Equity ratio % = 100/
Balance sheet total - advances received
Interest bearing net debt - cash in hand and on
Net gearing = deposit - marketable securities/
Equity + minority interest
Earning per Profit before taxes - minority interest - income
share (EPS) = taxes/
Average number of shares adjusted for dilutive
effect of options
Equity per share
= Equity/
Number of shares at end of
period
FORWARD-LOOKING STATEMENTS
This report contains statements concerning, among other things,
Stonesoft's financial condition and the results of operations that
are forward-looking in nature. Such statements are not historical
facts, but rather represent Stonesoft's future expectations. The
company believes that the expectations reflected in these
forward-looking statements are based on reasonable assumptions.
However, these forward-looking statements involve inherent risks and
uncertainties, which could cause actual results or outcomes to differ
materially from those anticipated in the statements. These risks and
uncertainties may include, among other things, (1) changes in our
market position or in the Firewall/VPN and Intrusion detection and
protection market in general; (2) the effects of competition; (3) the
success, financial condition, and performance of our collaboration
partners, suppliers and customers;(4) our ability to source quality
components without interruption and at acceptable prices;(5) our
ability to recruit, retain and develop appropriately skilled
employees;(6) exchange rate fluctuations, including, in particular,
fluctuations between the Euro, which is our reporting currency, and
the US dollar;(7) other factors related to sale of products, economic
situation, business, competition or legislation affecting the
business of Stonesoft or the industry in general and (8) our ability
to control the variety of factors affecting our ability to reach our
targets and give accurate forecasts.
For additional information, please contact:
Ilkka Hiidenheimo, CEO, Stonesoft Corporation
Tel. +358 9 476 711
E-mail: ilkka.hiidenheimo@stonesoft.com
Mikael Nyberg, CFO, Stonesoft Corporation
Tel. +358 9 476 711
E-mail: mikael.nyberg@stonesoft.com
Stonesoft Corporation
Ilkka Hiidenheimo
CEO
PRESS CONFERENCE
A press conference for analysts and investors will be held today, 25
October 2007 at 10:30 AM at the Stonesoft headquarters, street
address Itälahdenkatu 22 A, 00210 Helsinki.
This release and the presentation material related to this report are
also available on Stonesoft's web site at http://www.stonesoft.com
Distribution:
The Helsinki Stock Exchange
Main media
Stonesoft Corporation Interim Report January-September 2007
| Source: Stonesoft